CODE 18.77
Mr Clift, HKD o.r.
CONFIDENTIAL
MEASURES OF CONFIDENCE IN HONG KONG
1.
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I mentioned to you that we had been doing some further work on this subject. This is described in two short papers by Mr Hallett (drafts attached).
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See 15 See 17
2. The first sets out a framework for evaluating some of the measures which have been proposed (for example, those in the 1982 Economic Report and in various letters from the Political Adviser), and then comments (para. 14-18) on their usefulness. Rather as we expected, it suggests that most of these measures do not really shed much light on changes in confidence. might do better to continue to rely upon looking at pressures on the Hong Kong dollar and upon keeping a close eye on the anecdotal evidence, trying to fit it into the framework as far as possible. Another useful indicator might be private sector investment.
3.
The second paper looks at movements in the Hong Kong dollar and also at a measure which we thought might be useful i.e. changes in the proportion of Hong Kong bank deposits held in Hong Kong dollars rather than other currencies. This proportion fell sharply throughout 1982 after declining only gradually in previous years. Unfortunately, it is hard to determine how far this reflects a sudden decline in confidence and how far it is simply a response to the elimination of withholding tax on non-Hong Kong dollar deposits. This must have been the main influence initially, but there may be some mileage in this approach in the future.
4.
Subject to any comments you may have, I would like to pass these notes (or a revised version combining them) to the Bank of England and, perhaps, the Treasury for comment. We might also consider seeking HK views.
15 June 1983
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SH Broadbent ESID
WH426C 233 4810
CONFIDENTIAL
MKK. 51
RECEIVED IN SAY NO. 51 16 JUN 1983
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